What is Open Banking?
Open banking can be described as banking practice or process of account-holding financial institutions, usually, banks, opening up their previously-monopolized consumers‘ account data for regulated third-party financial service providers, usually fintech companies, to access, use and share it. In simpler terms, open banking is the process of data sharing between banks and non-banks. Data shared between different parties includes consumer‘s financial and personal information, such as account details (e.g., account name, account number, and balance), regular payments (e.g., standing orders, direct debits), account transactions, account features, and benefits (e.g., the type of account the consumer has, the charges, benefits). Most importantly, open banking ensures that banks open up their data channels to third parties and share consumer data with them only when requested by users. Also, open banking enables consumers to know who has access to their data and allows them to permit or deny access to their financial data. Open Banking relies on data being securely shared or openly published through open APIs, also known as Application Programming Interfaces that let third-party apps access consumers’ data through their bank accounts. These APIs are established by banks and are integrated with third-party technologies to carry out specific functions considering consumers’ data. Due to open banking users can time-efficiently and comfortably consolidate, view, and access their banking information across multiple banks and bank accounts and securely initiate payments. By requesting banks to share their data with other financial institutions, open banking encourages institutions to deliver more and better payment services and boost innovative solutions to financial problems. To sum up, open banking allows banks and non-banks to share financial data through APIs with explicit consumer consent to provide consumers with innovative services.
Open Banking Standard explained
As the UK is the powerhouse regarding financial innovations and the development of open banking in Europe, the Open Banking Standard specifically refers to a UK initiative launched in 2015 by the Open Banking Working Group. The Open Banking Standard describes a set of specifications and rules addressing data, technical, and security aspects to data-sharing through APIs. This Open Banking Standard was developed and maintained collaboratively and transparently and can be accessed and used freely. According to Open Banking Working Group, the Open Banking Standard consists of three different standards, including:
- Data standards, which are specifications and rules that specify how financial data must be shared, described, and recorded, potentially encompassing agreements on representation, format, definition, and structure, and other features.
- API standards, which are specifications and rules that inform the design, development, and maintenance of an API, including guidelines about architectural design, resource formats, documentation, and versioning.
- Security standards, which are rules of the API specifications that describe how an API behaves and how the API links with other APIs.
As proposed by the Open Banking Working Group, a common standard on open banking can help reduce many of the frictions associated with data-sharing, provide uniform infrastructure to compete and innovate upon and encourage higher customer and third party adoption. Also, adopting common standards for open banking benefits all parties in the payment value chain, including consumers, developers, and banks. Because the same standards implemented by all banking industry members encourage competitiveness, this benefits users by providing a variety of options to make informed choices about financial products and services. As Open Banking Standard ensures unified and easy access to data, developers, such as fintech companies, can improve existing products and services or develop new ones to fulfill evolving demands. Also, the adoption of common standards on open banking profits banks by allowing them to upgrade their interactions with customers and offer modern services. Find out more about Open Banking Standard: https://nordigen.com/en/open-banking/standard
Founder Dinis Guarda
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